When Daniel Fong’s kids got in­volved in his crıb com­pany, they turned a sim­ple whole­sale busi­ness into a pow­er­house– with its own startup

Inc. (USA) - - INNOVATE - BY LIND­SAY BLAKELY

IN 2013, TEDDY FONG was roam­ing the show­room of a fac­tory in Shen­zhen, China, when a stylish, mod­ern sec­tional caught his eye. He asked the fac­tory owner how much it cost to make. About $200 to $300, the owner replied. Fong was as­ton­ished. It was the kind of sofa that might sell for thou­sands at a Room & Board. “There are crazy mar­gins in the sofa busi­ness,” Teddy thought. At the time, Teddy was in the crib busi­ness— but this was enough to make him think maybe he ought to be in the sofa busi­ness, too. Teddy runs Mil­lion Dol­lar Baby, a $70 mil­lion chil­dren’s fur­ni­ture whole­saler his par­ents, Daniel and Maryann Fong, started in 1990. (Since then, MDB has made six ap­pear­ances on the an­nual Inc. 5000 list of Amer­ica’s fastest-grow­ing pri­vate com­pa­nies.) It pro­duces six brands of cribs, at nearly every price point and style, and sells them through al­most every ma­jor on­line re­tailer, in­clud­ing Ama­zon, Wal­mart, and Tar­get, and at many spe­cialty re­tail­ers. Heard of the best-sell­ing $379 min­i­mal­ist Babyletto Hud­son crib? That’s MDB. Bey­oncé’s $4,500 translu­cent acrylic Vetro crib? That’s MDB, too.

But MDB didn’t al­ways have Bey­oncé-cal­iber cus­tomers. Al­most three decades ago, Daniel Fong was a ven­ture cap­i­tal­ist with an urge to start a com­pany. He did some re­search and bought and then merged two baby-fur­ni­ture whole­salers, which had low over­head and were prof­itable.

One in­no­va­tion that set the com­pany apart in its early days was its dis­tri­bu­tion. Most crib ven­dors re­quired re­tail­ers to place their or­ders twice a year and then hold the in­ven­tory them­selves. Daniel made the con­trar­ian move of set­ting up shop in a 30,000-square-foot ware­house in the L.A. sub­urb of Mon­te­bello, an in­dus­trial area close to the re­tail­ers he served. Re­tail­ers could pick up fur­ni­ture at any time, while sav­ing floor space. “My tag line was ‘Use my ware­house as your ware­house,’ ” Daniel says.

He took a sim­i­larly ef­fec­tive tack with his man­u­fac­tur­ers in Asia. In­stead of hav­ing a trans­ac­tional re­la­tion­ship, MDB would or­der in­ven­tory it didn’t need just to keep busi­ness steady for its most cov­eted fac­to­ries, which over time be­came so loyal that they worked with MDB ex­clu­sively, or agreed not to make copy­cat de­signs for com­peti­tors. “I act as their sales depart­ment and I treat them as our man­u­fac­tur­ing depart­ment,” says Daniel, who would even in­vite fac­tory own­ers to stay with him and Maryann when they were in town (a cou­ple did).

Teddy and his sis­ter, Tracy, grew up roller-skat­ing around MDB’s ware­house, some­times help­ing pack­age nuts and bolts, but Daniel didn’t ex­pect them to join the busi­ness. He had worked re­luc­tantly in his own fa­ther’s tex­tile com­pany for four years, and didn’t want to ap­ply that pres­sure to his kids. Both went to Har­vard, but in 2004, af­ter Maryann

de­vel­oped colon cancer, Tracy put off an art cu­rat­ing job at Sotheby’s in New York City to come home—and never left. Teddy grad­u­ated in 2006, in­terned at ESPN, worked briefly as a movie pro­ducer’s as­sis­tant, and then fol­lowed Tracy’s lead.

Daniel had them start in ju­nior roles. When Tracy ar­rived, many ven­dors still thought cus­tomers wouldn’t pur­chase fur­ni­ture on­line, but the then-23-year-old saw op­por­tu­nity. Daniel had tested eBay as a place to sell dis­con­tin­ued items, so Tracy used the eBay busi­ness—which was pulling in about $100,000 an­nu­ally—as a way to iron out the lo­gis­tics of ship­ping cribs. In 2005, when Ba­bies “R” Us cold-called Tracy to see if the com­pany could start drop-ship­ping its sig­na­ture Jenny Lind crib—a vin­tage de­sign made with carved wooden rods—MDB was ready. “Our core com­pe­tency be­came drop-ship­ping” and mak­ing prod­ucts “FedEx-able,” says Tracy, who’s now MDB’s VP of sales. Soon, MDB added Wal­mart, Ama­zon, Tar­get, and other ma­jor e-com­merce sites to its cus­tomer list.

When Teddy joined in 2006 as a ju­nior ac­count rep trav­el­ing to re­tail­ers on the West Coast, he re­al­ized the com­pany had no brand recog­ni­tion. “We were al­ways at the back of stores, not in the [dis­play] win­dows,” he says. He an­a­lyzed the crib mar­ket, and ob­served that de­sign in­no­va­tion hap­pened only at the high end. So he pitched his fa­ther on a mod­ern, af­ford­able crib brand for de­sign-savvy par­ents. The re­sult was Babyletto, which launched in 2009 and is a big part of why MDB started to pick up roughly $10 mil­lion in rev­enue each year. In 2010, Teddy or­ches­trated the ac­qui­si­tion of the up­scale Nurs­ery Works line, which sells that $4,500 acrylic Vetro crib.

Over the years, MDB had be­come an ex­tended fam­ily af­fair. Daniel’s younger sis­ter, Ju­lia Fong Yip, joined in the early 1990s and even­tu­ally be­came the com­pany’s VP of tal­ent man­age­ment, and his older sis­ter’s hus­band, John Kwok, be­came MDB’s CFO. Other spouses en­tered the fold too— Tracy’s hus­band, Eric Lin, a trained ar­chi­tect, was hired in 2011 as MDB’s head of prod­uct de­vel­op­ment, while Teddy’s wife, Tiffany, who once worked as Steve Jobs’s as­sis­tant, be­came MDB’s cre­ative di­rec­tor in 2015.

Eric and Tiffany fur­ther el­e­vated and di­ver­si­fied the com­pany’s of­fer­ings, help­ing to cre­ate a crib-brand pow­er­house. With Nurs­ery Works, MDB had a ve­hi­cle for higher-end de­signs but lacked the in-house ex­per­tise. That changed with the ar­rival of Eric, who dis­cov­ered that the com­pany’s de­sign process was rel­e­gated to Mi­crosoft. “Babyletto was born in MS Paint,” he says. Like most crib whole­salers, MDB was some­what re­ac­tive, mostly tweak­ing com­peti­tors’ styles. As MDB’s first pro­fes­sional de­signer, Eric helped move the com­pany toward more orig­i­nal looks, com­pet­ing on brand rather than on price. One of the re­sults was the fu­tur­is­tic, $7,500 solid maple Gra­di­ent crib, which got at­ten­tion from the de­sign com­mu­nity. Mean­while, Tiffany started cre­at­ing dis­tinct iden­ti­ties for each brand, help­ing tar­get every price point more ef­fec­tively.

By 2014, Daniel was pre­par­ing to pass the CEO torch. Tracy wasn’t ready to take the helm, so her brother and fa­ther de­cided to share the role for a year, un­til 2015, when Teddy be­came the sole CEO. The el­der Fong—who gave him­self the ti­tle of teacher—ges­tured toward his son’s au­ton­omy, an­nounc­ing to em­ploy­ees that a new di­rec­tion was healthy in a fam­ily busi­ness. But in strat­egy ses­sions and man­age­ment meet­ings, Daniel’s voice re­tained its out­size in­flu­ence, and em­ploy­ees of­ten be­came con­fused about whose lead to fol­low.

To bring clar­ity to ev­ery­one’s roles, the fam­ily hired a lead­er­ship train­ing ex­pert who set up quar­terly meet­ings. At one, the ex­pert ad­dressed what he di­ag­nosed as Daniel’s “seag­ull” prob­lem: De­spite the fact that he’d handed over the CEO role to Teddy, Daniel had a ten­dency to swoop in, crap all over the place, and fly away. “That was an in­ter­est­ing, tough con­ver­sa­tion,” says Teddy. It’s still a process, but now Daniel strives to use sug­ges­tive lan­guage in­stead of di­rec­tives. “Com­ments like that I love,” says Daniel. “With­out that, I can’t im­prove.”

With MDB now dom­i­nat­ing the nurs­ery, Teddy de­cided to tackle an­other part of the home—the liv­ing room. In 2015, two years af­ter visit­ing that Chi­nese fac­tory where he learned how in­ex­pen­sively mod­ern couches could be made, he launched MDB’s first startup, Cap­sule Home. The e-com­merce com­pany sells mod­ern, neu­tral so­fas that range from $900 to $5,000 as well as other fur­nish­ings.

It’s the first time MDB has tried to sell di­rectly to cus­tomers, and it’s do­ing so in a cat­e­gory that is al­ready well pop­u­lated with such re­tail­ers as West Elm and Crate & Bar­rel and on­line up­starts like Ar­ti­cle. While Cap­sule has got­ten some good press, Teddy and his Cap­sule co- CEO, Kelly Hwang, are up­front about the dif­fi­cul­ties they face. “The big­gest chal­lenge is the slow pace of growth tied to build­ing brand aware­ness,” says Hwang, a for­mer startup ad­viser and in­vestor. So they’re ex­per­i­ment­ing—email mar­ket­ing, pop-up shops, In­sta­gram give­aways, whole­sal­ing ear­lier prod­uct it­er­a­tions on sites like Way­fair—to see what sticks.

They’re hop­ing that Cap­sule’s se­cret weapon will be those close man­u­fac­tur­ing re­la­tion­ships Daniel cul­ti­vated over twoplus decades. That Chi­nese sofa fac­tory, for in­stance, is owned by Ken­neth Chong, a loyal MDB man­u­fac­turer. Chong val­ues his re­la­tion­ship with the Fongs so much that last year he pro­to­typed roughly 50 con­cepts for Cap­sule that he’ll pro­duce in very low quan­ti­ties—some­times just five or 10—as the startup fig­ures out what sells well.

Chong is also work­ing with Cap­sule to pro­duce a $400 sofa with USB charg­ing ports that will de­but in Au­gust. Teddy hopes the new couch will be just the au­da­cious prod­uct the com­pany, which re­cently hit seven fig­ures in rev­enue, needs to cut through the noise. Daniel is pa­tient. “A brand is just a hobby un­til it hits the $2 mil­lion mark,” he says.

So­phie Fong SIX-MONTH-OLD DAUGH­TER OF TEDDY AND TIFFANY, IN THE $4,500 ACRYLIC VETRO, THE CRIB PUR­CHASED BY BEY­ONCÉ.

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